Federal bill targets construction accounting

By James Briggs

A federal bill that’s gaining momentum could offer tax advantages to small and mid-sized contractors.

The American Job Builders Tax Reform Act of 2011, sponsored by U.S. Reps. Wally Herger, R-Calif., and David McKinley, R-W. Va., would open up the completed-contract method of accounting to a majority of contractors, said Robin Word, chairman of the Tax Advisory Group for the Associated Builders and Contractors of America.

The completed-contract method lets contractors pay taxes after a project is completed rather than paying based on estimated financial information while a project still is under way, a process called the percentage-of-completion method.

Only contractors with annual revenue of $10 million or less can use the completed method, but that threshold would increase to $40 million under the Republican-backed bill. The current rules have been in place since 1986 when the $10 million threshold covered far more contractors than it does today.

Passage of the bill, Word said, would let contractors hang onto their money longer. It also would include an indexing provision, so the threshold would keep up with inflation.

“To me,” he said, “it’s a great way for companies to create capital and enable them to hire more people.”

A similar version of the bill stalled last year, but Word said he hoped it would attract more attention the second time around.

“If you’re not familiar with construction contractors, you’re probably not familiar with this tax method,” he said. “However, with construction being such a large portion of the economy, we really think it’s way past time for this law to be changed.”

Brandon Moody, a spokesperson for Republican U.S. Rep. Reid Ribble of Appleton, noted the bill “was just introduced a week ago and only has two co-sponsors.” The bill has been referred to the House Committee on Ways & Means for further action.

Moody on Friday said he hadn’t had a chance to discuss the bill with Ribble, but “as the owner of a successful commercial roofing business for 30 years, this looks to be something he would be supportive of.”

Tom Dufour, vice president of Menomonee Falls-based J. H. Hassinger Inc., said he couldn’t say for sure how the bill would affect Hassinger without speaking to the company’s accountant, but added it seemed like it would help.

Hassinger, he said, has been in the ballpark of $10 million in revenue for several years, exceeding that amount some years and falling below it in others. A bill increasing the completed method of accounting threshold to $40 million would mean the company always would have that option.

“We’ve always used a cost-to-complete (estimate),” Dufour said. “If (a project) wasn’t completed, which many of our jobs aren’t at (tax time), it reflects on our financial statement for the size of our company.”

While contractors have been helped by some recent changes to the tax code, Word said, this was the first bill in decades drafted specifically to help contractors. Although it’s an obscure issue, Word said, he hopes contractors would make it a high priority to push for the bill to pass.

“Contractors have historically benefited from general tax breaks such as bonus appreciation and some work opportunity credits,” he said. “But as far as a construction-specific tax issue, this is probably the most critical that contractors have seen since at least 1986.”